Chesapeake Energy Corporation May Swap For 1.5 Lien Debt

Chesapeake Energy is apparently thinking about swapping out some of the debt it currently has for new 1.5 lien debt. The struggling oil and gas giant apparently hasn’t made a final decision about whether to do that or not, however.

Chesapeake Energy said to consider debt swap

According to Reuters, CapitalStructure says it would be an attractive move for Chesapeake to swap for 1.5 lien debt based on the current pricing for the energy giant’s bounds. However, the timing on the swap, if the company chooses to do it, is uncertain. The news and analysis source specializes in the sub-investment grade space, and it cites unnamed sources familiar with Chesapeake’s discussions on the matter.

Reuters says that usually companies can wedge 1.5 lien debt between first and second liens, although it depends on the specific agreements a debtor may have with its creditors.

Chesapeake’s bonds trading at depressed levels

Chesapeake Energy’s bonds with maturity dates next year traded at about 70 cents on the dollar on Thursday, while those with maturity dates the following year were trading at about 50 cents, according to data from Thomson Reuters. The media outlet says that those prices are considered to be depressed. Chesapeake has been struggling amid falling commodity prices, although it has said recently that it doesn’t intend to file for bankruptcy.

The last time the company did a bond swap, which was last year, it offered holders secured bonds with an interest rate of 8% in exchange for unsecured bonds that had maturity dates ranging from 2017 to 2013. However, Reuters said that deal was considered by many to be a failure because holders whose bonds were maturing in the earlier part of that range mostly didn’t participate in it, which meant that Chesapeake Energy was not successful in extending payment dates for the debt that’s due the soonest.

Low commodity prices aren’t the only problem plaguing the company right now. Moody’s and Standard & Poor both cut Chesapeake’s credit rating in December, moving it further into junk territory as crude prices lingered at around $30 per barrel. Following that move, some of the company’s counterparties are demanding that it put up more collateral as assurance of its performance which is under contract.

Chesapeake Energy stock traded higher Friday afternoon, with shares climbing by as much as 3.66% to $4.96.

Energy companies seek relief

Bond swaps have become increasingly popular among energy companies, as Reuters reports that ten or more upstream oil and gas companies with operations similar to those of Chesapeake also completed some swaps of their own last year. As commodity prices remained low for an extended period of time, they were attempting to cut down the debt they owe in the near term while also reducing their costs. Many of them have already been canceled this year, says the media outlet.

But relief may be in site for companies in the commodities space as oil prices bounced, rallying from $26 per barrel up past $40 per barrel. But whether this will be a sustained rally remains to be seen as the markets keep a close eye no only on oil prices but on the bigger picture which includes them.